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Fortune 500 Daily & Breaking Business NewsTue, 31 Mar 2015 18:06:34 +0000enhourly1http://wordpress.com/http://1.gravatar.com/blavatar/dab01945b542bffb69b4f700d7a35f8f?s=96&d=http%3A%2F%2Fs2.wp.com%2Fi%2Fbuttonw-com.png » U.S. Securities and Exchange Commission - Fortunehttp://fortune.com
Fortunehttps://s0.wp.com/wp-content/themes/vip/fortune/assets/images/fortunelogo.pnghttp://fortune.com25040SEC hands out $30 million in largest-ever whistleblower awardhttp://fortune.com/2014/09/22/sec-hands-out-30-million-in-largest-ever-whistleblower-award/
http://fortune.com/2014/09/22/sec-hands-out-30-million-in-largest-ever-whistleblower-award/#commentsMon, 22 Sep 2014 18:40:16 +0000http://fortune.com/?p=795735]]>The U.S. Securities and Exchange Commission announced the largest-ever award to result from a whistleblower program that went into effect three years ago.

The government will fork over more than $30 million to one anonymous whistleblower who provided information that led directly to enforcement in an undisclosed securities case, the SEC said Monday. The agency is required by law to protect whistleblowers’ identities, which results in a dearth of information being released with regard to the tipsters and the frauds they help the government uncover.

“This whistleblower came to us with information about an ongoing fraud that would have been very difficult to detect,” Andrew Ceresney, director of the SEC’s enforcement division, said in an unsurprisingly cryptic statement. “This record-breaking award sends a strong message about our commitment to whistleblowers and the value they bring to law enforcement.”

The award more than doubles the previous record for a whistleblower payout, which came in the form of a $14.7 million award announced last October. That whistleblower was initially anonymous, but a recent lawsuit actually unveiled the tipster’s identity as that of Global Capital Markets Advisors principal Michael Sears. The court fight made headlines this summer as Sears’ business partner, John Tung, sued him for part of the SEC award, which Tung claimed Sears had promised to share after he provided the government with information that helped shut down a fraud involving the federal visa-for-sale program.

The SEC’s whistleblower awards generally amount to anywhere from 10% to 30% of the amount of money collected from the relevant securities case, with a possibility for future payments should the government subsequently collect even more money from a defendant. The SEC’s whistleblower order does not identify what percentage of the total collected funds that the award represents, though the order does note that the whistleblower actually challenged the size of the award by claiming that it falls short of the average percentage amount awarded by the SEC. However, the SEC notes in its order that the award might have been even higher had the whistleblower reported the violations in a more timely fashion.

The SEC also notes that Monday’s award goes to the fourth foreign whistleblower to participate in the agency’s program, which whistleblower chief Sean McKessy says “shows the international breadth” of the program. Monday’s announcement also marks the ninth whistleblower award handed out so far this year. In June, the SEC said it would give two anonymous tipsters a total of $875,000.

]]>http://fortune.com/2014/09/22/sec-hands-out-30-million-in-largest-ever-whistleblower-award/feed/0Management Icon ThumbnailhuddlestontomIs the SEC being too soft on Affiliated Computer Services?http://fortune.com/2014/09/02/is-the-sec-being-too-soft-on-affiliated-computer-services/
http://fortune.com/2014/09/02/is-the-sec-being-too-soft-on-affiliated-computer-services/#commentsTue, 02 Sep 2014 19:31:59 +0000http://fortune.com/?p=779788]]>One of the main jobs of the U.S. Securities and Exchange Commission is to crack down on accounting fraud at public companies, but a commissioner recently questioned if the agency is living up to its mission. In a surprising dissent last week, Luis Aguilar broke ranks with three other commissioners over a punishment meted out to the former CEO and CFO of Affiliated Computer Services.

Before we read anymore into the case, it's worth revisiting the facts of the case: in 2009, former ACS CFO Kevin Kyser enabled the company to pad revenues by $124.5 million by arranging for an equipment manufacturer to run pre-existing orders through ACS, giving the appearance that ACS was involved in the transactions. In reality, ACS never had actual or constructive possession of the goods. The customers weren't even aware of ACS involvement. The arrangement allowed ACS to give investors the false impression that it was meeting its internal revenue growth guidance – and, as described in the Commission's own enforcement release, rewarded Kyser and CEO Lynn Blodgett with bonuses that were 43% higher than if the sham revenues hadn't been reported. In a post-Enron, post-Sarbanes-Oxley world, both officers had signed off on the financial statements, attesting to their virtue.

The SEC slapped executives with fines and penalties, but what's surprising is that Kyser was not also barred from practicing as an accountant before the SEC. Typically in cases involving accounting deceptions there are always fines and disgorgements of profits, but there's usually a prohibition from serving as an accounting officer for public companies as well. In Aguilar's view, the punishment amounted to merely a "wrist slap at best," providing more evidence of an SEC that "reflects a lack of conviction to charge what the facts warrant and to bring appropriate remedies."

Aguilar believes the Commission is effectively defining down deviancy. In his view, the case warranted fraud charges and suspension before the Commission, but instead only pursued more technical infractions like "books and records" violations and internal control weaknesses. That's like putting Al Capone in jail for failing to file a tax return instead of racketeering. In his view, the punishment not only permits malefactors to receive a mere slap on the wrist, it sends the wrong signal to others: when fraud occurs, this is a commission that will accept weak settlements with lesser charges.

There are other messages in this case. For one, Xerox XRX shareholders should feel cheated: the company shelled out $6.7 billion to buy ACS, based on willfully misstated numbers. Another message: share-based compensation doesn't always bring "alignment with shareholders." It can increase the temptation for officers to do the wrong thing. Not only did the company's CEO and CFO receive 43% higher bonuses in 2009, they had already been rewarded through stock compensation. As of the last ACS proxy, Blodgett and Kyser held ACS shares worth $35.8 million and $4.6 million, respectively, when Xerox paid $63.11 per share to buy the whole company.

What's more, the SEC may be too conflicted to function smoothly. It would have been interesting to see if SEC Chair Mary Jo White agreed with Aguilar's assessment. She recused herself from the vote, however, because Cravath, Swaine & Moore - the law firm employing her husband – had worked with ACS.

One actor's bad behavior can have a trickle-down, systemic effect on many players in the financial markets. Making it a technical infraction does nothing to keep it from spreading or maintaining confidence in the markets.

Jack T. Ciesielski is president of R.G. Associates, Inc., an asset management and research firm in Baltimore that publishes The Analyst’s Accounting Observer, a research service for institutional investors.

]]>http://fortune.com/2014/09/02/is-the-sec-being-too-soft-on-affiliated-computer-services/feed/0Luis Aguilarnt2192Isn’t one Internet enough?http://fortune.com/2014/08/22/ripple-virtual-currency/
http://fortune.com/2014/08/22/ripple-virtual-currency/#commentsFri, 22 Aug 2014 15:11:23 +0000http://fortune.com/?p=774873]]>The late linguistics and political columnist William Safire used to write delightfully about retronyms--words or expressions that change because newer versions of the object or concept they describe render the original obsolete. An acoustic guitar, for example, was a plain old guitar before the electric guitar came along. A telephone became a landline telephone with the advent of the mobile phone.

I thought about retronyms the other day when for the first time I heard what I’d always thought of as the Internet referred to as the “Internet of knowledge.” Already we’ve all been nauseated by the “Internet of things.” But then the finance-technology entrepreneur Chris Larsen told me about the “Internet of value exchange.” He differentiated this newer network from one that transmits knowledge, otherwise known as the original version of the Internet.

The details of this value-exchange network are complicated but the concept--and the comparison to the original, knowledge-based Internet--is straightforward. Larsen run a virtual-currency company called Ripple Labs. It traffics in a digital currency of its own creation called XRP. The point of XRP, similar to bitcoin, is that it enables financial institutions to transfer money across the country or around the world quickly and cheaply. Here’s where the analogy comes in. A snail mail (another retronym) letter travels expensively and slowly from point to point. An email zips from sender to receiver in a heartbeat and at nearly no cost. Virtual currency enables money transfers over the Internet rather than the system known as the correspondent banking system, a racket run by global banks. “We think” says Larsen, “this is the first viable alternative to correspondent banking.”

I can’t judge if virtual currencies can replace foreign exchange as we know it. I do know that Larsen has a track record of being early on such things. In 1994 he founded E-Loan, an online mortgage broker he took public and ultimately sold to Banco Popular for a fraction of its peak bubble-era valuation. In 2006 he launched Prosper, a person-to-person lending platform that smacked head-long into regulatory opposition from the U.S. Securities and Exchange Commission. Prosper survives today, along with its bigger competitor, Lending Club.

Ripple actually refers to two entities: Larsen’s for-profit company, Ripple Labs, and an open-source protocol called Ripple, which allows financial institutions to plug in and augment to their own needs. (Digital publishers will recognize an analog to Ripple and Ripple Labs in WordPress, the open-source blogging platform, and Automattic, the company that created it and provides services to companies that use it.) Ripple funded itself in part by selling a sizable chunk of the virtual currency it created to make its system work. (An article explaining Ripple and its relationship to the global banking system appeared on Fortune.com earlier this year.) On the day I visited, Ripple Labs had just moved into new, hip offices in San Francisco’s Financial District. Its conference rooms are named for famous economists, including Hayek, Friedman, and Keynes. Employees of the month are termed “Ripple Laureates.”

Who knows if the expression “Internet of value exchange” will catch on or if one day we’ll be referring to the retronym “Internet of knowledge.” For now, these words help us understand complicated and exciting changes in the world around us.

]]>http://fortune.com/2014/08/22/ripple-virtual-currency/feed/0Ripple Labs CEO Chris Larsen Fortune Brainstorm Tech 2014Adam Lashinsky, Sr. Editor at LargeHertz delays quarterly earnings as it undergoes accounting reviewhttp://fortune.com/2014/08/12/hertz-delays-results-filing/
http://fortune.com/2014/08/12/hertz-delays-results-filing/#commentsTue, 12 Aug 2014 11:50:34 +0000http://fortune.com/?p=768743]]>Hertz Global Holdings has warned it will delay the filing of its second-quarter results, as the car-rental company continues to work through an accounting review that found errors in three years of financial statements.

In a filing with the Securities and Exchange Commission, Hertz said it was “unable to timely file” its quarterly results, citing an ongoing internal review of financial records and its potential impact on the company’s 2014 results. Hertz said it was unable to complete the report by the Aug. 11 due date without “undue effort and expense.” The filing was signed by Hertz’s new CFO Thomas Kennedy.

Hertz HTZ first noticed errors earlier this year when it was preparing its first quarter results, which also resulted in a delayed 10-Q filing with the SEC. The company concluded its 2011 financial statements could no longer be relied on, and also needs to correct the 2012 and 2013 statements to reflect those errors. Those issues led Hertz to suspend an employee stock-purchase program and could also affect the timing of Hertz’s planned spin-off of its equipment-leasing business.

Putting aside the accounting woes, Hertz and other car-rental companies have performed well of late, benefiting from a pickup in business and leisure travel in recent years. Recent consolidation in the U.S. has left just three major players, giving the firms greater pricing power. Peer Avis Budget Group CARearlier this month reported a 10% jump in second-quarter revenue, with pricing in North America climbing 4% excluding a recent acquisition. The third major player, Enterprise Holdings, is privately held.

The Securities and Exchange Commission had halted trading of the company’s stock earlier this month because of concerns over “the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in Cynk’s common stock.”

Before its suspension, Cynk’sCYNK shares, which traded as a penny stock, had soared more than 25,000% in value, despite a lack of revenue, assets, or even any users. The company’s meteoric rise had given it a market valuation of more than $6 billion – more established companies like Panera bakery, U.S. Steel, AOL, E-Trade and Cablevision – while generating headlines, suspicions of fraud and the attention of the SEC.

The Belize-based company, which was founded in 2008, has a mission statement describing itself as “a development stage company” with a focus on social networking. Fortune recently wrote about the string of Belize-based companies, including Cynk, with questionable origins and operations and also about Cynk’s connection to a small-time Las Vegas lawyer.